"Recession" - Sentiment in the German economy deteriorates massively

Created: 09/26/2022, 11:55 am

By: Thomas Schmidtutz

Clemens Fuest: The head of the Munich ifo Institute sees Germany on the way to a recession.

© Imago/Jürgen Heinrich

The prospects for the German economy continue to deteriorate - and there is no end in sight.  

Munich – The mood in the German economy has deteriorated massively in September due to the energy crisis and the aftermath of the corona pandemic.

The business climate index of the Munich ifo institute fell by 4.3 points to 84.3 points compared to August.

Economists had only expected a decline to 87.0 points.

The most important leading indicator for the German economy was at its lowest level since May 2020. "The German economy is slipping into recession," commented ifo boss Clemens Fuest on the data on Monday.

The chief economist at Commerzbank, Jörg Krämer, also sees the data as a warning signal: Germany is “facing a difficult winter,” explained Krämer.

ifo Business Climate: Companies are becoming significantly more cautious

The expectations component of the ifo index for the next six months fell the most.

The corresponding value dropped to 75.2 points after 80.5 before.

At the same time, companies assessed their current situation in September at 94.5 (August: 97.5) points, which was considerably worse than in the previous month.

The decline runs through all sectors.

The index fell noticeably in the manufacturing sector, and “crashed” in the service sector.

The hospitality industry in particular fears difficult times.

In retail, too, the business climate “deteriorated again”.

Expectations in the construction industry are also more pessimistic than they were a month ago.

ifo business climate index: Difficult environment

The German economy is currently suffering massively from rising energy prices.

In addition, the interest rate turnaround by the ECB and the associated higher refinancing costs are dampening the mood.

In addition, the pandemic is still not over: China's anti-corona policy in particular is repeatedly causing problems in world trade, for example because operations in ports or factories are disrupted due to containment measures.

Around 9,000 companies answer questions from the Ifo Institute every month for the business climate index.

They are asked to assess their current business situation (“good”, “satisfactory”, “poor”) and their expectations for the next six months (“more favourable”, “stable”, “less favourable”).